Monthly Archives: February 2015

The Detroit Land Bank Authority submitted a resolution to the City Council in January requesting that the City Council authorize the Planning and Development Department to transfer all of the City’s right, title, and interest in the remaining vacant residential parcels—which amounts to approximately 30,000 properties—to the Detroit Land Bank Authority for no cost.

The resolution has not come as a surprise. The Detroit Land Bank Authority’s role has seen a dramatic increase in last few years under former-Emergency Manager Kevyn Orr and current-Mayor Mike Duggan. The DLBA has grown from a small outfit of about 5 staff members to its current 82 full-time staff in just a few years, with ownership of 50,000 parcels within the City. Meanwhile, the real estate division at the Planning and Development Department—which was previously responsible for the majority of City land sales—has been dismantled. Given the quick transition from the Planning and Development Department to the DLBA, the natural question that many have been asking is just what is this land bank thing anyways?

Originally created in 2008 under the authority of the Land Bank Fast Track Act, the DLBA was meant to assist the City of Detroit in its effort to clear title to abandoned property and facilitate its use and development. However, to call it a City department would be incorrect. While it’s official designation is a “public body corporate.” It is managed by a Board of Directors, who selects the Executive Director to run the day-to-day operations of the DLBA. In practice, this means that the DLBA is essentially the land management arm of Mayor Duggan. The Mayor selects 4 of the 5 Board Members and has the power to remove any of the 4 Board Members he selects for any reason at any time. This centralized power structure comes with its advantages and disadvantages.

The advantage of the DLBA is its efficiency. The DLBA acquires properties through various means, cleans the title, and then sells the property to private individuals and entities. Notably, land disposition decisions regarding the DLBA are centralized in the DLBA alone. Unlike with property owned by the Planning and Development Department in years past, there is often no need to get the approval of any other City department. However, this centralized power is also the cause for concern for many regarding the DLBA.

First, there are fundamental concerns with how the DLBA is funded. The majority of its Board of Directors are appointed by the Mayor and it has the power to accept funding from all sources, including from corporations and other for-profit companies. Therefore, there is a concern that private money will directly influence governmental decision-making. Second, there is a concern that the DLBA, with its centralized power regarding land disposition, may be less responsive to and less representative of the general public of Detroit.

The reality is that the DLBA is somewhere in between. While it is efficient and has been an effective partner for some urban agriculture groups looking to expand operations and purchase property, it has also been a point of frustration for others who have tried to purchase property from the DLBA but either haven’t received responses or haven’t been dealt with in a completely forthright manner.

To further complicate matters, the transfer of the remaining 30,000 properties presents more concrete issues for many urban farmers. Many have operated on City-owned property pursuant to year-to-year permits. Some urban farmers have already had land that they were operating on transferred to the DLBA while others are operating on what is still City-owned property. This has prompted many urban farming organizations to examine just how secure their property interests are and to voice questions regarding just what the DLBA is planning to do with all this property.

The concerns described above have not gone unnoticed by the Detroit City Council. Councilwoman Mary Sheffield submitted a memorandum to the Detroit Legislative Policy Division in late-January requesting a report on, among other things, the issues discussed above.

The report called for “a comprehensive, documented, legal and policy statement of the role of the Land Bank in such critical land use, community economic development and blight eradication activities…” Specifically, the report called for three main things:

A newly drafted Intergovernmental Agreement to more clearly the role of the DLBA in the disposition of residentially zoned land considering the dismantling of the real estate division of the Planning and Development Department.

A policy that clearly lays out the processes for how residents can acquire property through the DLBA in the Intergovernmental Agreement

Complete inventory of DLBA-owned property

If you have been operating an urban farm on City-owned property, you should check to see whether it has been transferred to the DLBA or whether it is still owned by the Planning and Development Department. If it has been transferred to the DLBA, any agreement you had with the City to be on the property may have been effectively revoked upon the transfer. Whether the property is currently owned by the Planning and Development Department, you should also consider contacting your local District Neighborhood Manager as well as your local Council Member to figure out what plans the DLBA or the City may have for the property that you have invested in and operated on.

In working with nonprofit organizations around the City, I have encountered several groups that are either misinformed about nonprofit property tax exemption or have been frustrated in their ability to be apply for nonprofit property tax exemption. This post will detail how food enterprises of all sorts, whether for-profit or nonprofit, can limit their tax liability under the Michigan General Property Tax Act.

Property taxes in Michigan are largely governed by the state constitution and the Michigan General Property Tax Act. Article IX, Section 3 of the Michigan Constitution states that the “legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law…” Section 211.27a of the Michigan General Property Tax Act provides that “property shall be assessed at 50% of its true cash value.” True cash value is defined by the Act as “the usual selling price at the place where the property is located.” Once the assessment is made, real property is taxed according to local millage rates. Detroit’s millage rate for 2014 was one of the highest in the state at 84.5085.

Non-Profit Organizations

A.) Legal Qualifications

Section 211.7o of the Michigan General Property Tax Act provides that “real or personal property owned and occupied by a nonprofit charitable institution while occupied by that nonprofit charitable institution solely for the purposes for which that nonprofit charitable institution was incorporated is exempt from the collection of taxes under this act.”

The legal language above can be broken into four basic requirements that a nonprofit organization must satisfy for its real property to be exempt from local property taxes:

Nonprofit organization must own the real property

Nonprofit organization must occupy the real property

Nonprofit organization must be a charitable, educational, or scientific institution, and;

Nonprofit organization must occupy the real property only for the purposes for which the nonprofit organization was created

1.) Nonprofit organization must own the real property

Many nonprofit organizations operate on property that is either owned by a partnering nonprofit organization or other entity, or operate on property owned by a founding stakeholder of the organization. However, in order to be eligible for real property tax exemption, the property must be owned by the nonprofit organization itself. The deed conveying the property to the nonprofit organization must also be recorded. Deed recording can be done at the Wayne County Register of Deeds.

2.) Nonprofit organization must occupy the real property

Michigan courts have interpreted “occupy”, as it is used in Section 211.7o, to require the nonprofit to maintain a regular physical presence on the property. This requirement is satisfied if at least one member or employee of the nonprofit regularly works on the property.

3.) Nonprofit must be a charitable, educational, or scientific institution

As an initial point, it is important to mention that even though an organization has received 501(c)(3) status from the IRS, it may still not be regarded as a “charitable” institution under the Michigan General Property Tax Act. The interpretations of Michigan courts and the IRS as to what is a “charitable” institution differ ever so slightly. Michigan courts have utilized the following six-factor test to make this determination:

Organization must be a nonprofit organization

Organization must be organized for charity

This is determined by looking to a nonprofit organization’s purpose statement contained in its bylaws and articles of incorporation.

Organization must operate as a charitable organization

Under this factor, a tax assessor goes beyond looking at the organization’s bylaws and articles of incorporation and analyzes the operations of the organization. There is no threshold requirement; instead, the assessor will look to the overall nature of the organization and determine whether it is charitable.

Organization cannot discriminate

As a general rule, an organization must operate on a first-come-first-serve basis and cannot select who most deserves their services.

Organization must lessen the burdens of government

Organization must be educational or religious, offer medical services, help people establish themselves for life, construct buildings or works, or provide some other service that the government would or should provide

Organization cannot charge fees greater than what is needed to successfully maintain the organization

While an organization can have profits, the revenues must be directed back towards the effectuation of the organization’s exempt purpose

4.) Nonprofit must occupy the property for its charitable purpose

The last requirement is that the nonprofit organization must occupy the property for the purposes for which the organization was created. Once again, the organization’s articles of incorporation and bylaws will be key. If the organization’s use of the property is necessary for it to implement its purpose, then it will meet this last factor.

B.) Application Process

If you believe that a property owned by your nonprofit organization meets the 4 factor test described above, the next step is completing a nonprofit property tax exemption application and submitting it to the Detroit Board of Assessor’s. The application should contain the following documents:

A cover letter asking that the property at a specific address be exempt from local real estate taxes and briefly describing why the property is exempt under the Michigan General Property Tax Act

Nonprofit property tax exemption application form

A résumé detailing the organization’s charitable purpose and how it utilizes the property at issue to further its charitable purpose

Pictures showing the property being used for its charitable purpose

Recorded deed to the property

Articles of Incorporation

Most recent Corporation Update

Applications can be mailed to or submitted in person at the following address:

Generally, the property taxes for urban agriculture enterprises should be fairly low. Urban agriculture operations are generally located on vacant properties that have historically been assessed as having fairly low true cash value. However, many property assessments haven’t been adjusted in several years. Therefore, if you believe your property assessment is too high, you should look to file a Petition to Board Review (Michigan Department of Treasury Form 618).

There is also a real property tax exemptions that for-profit urban farms should be aware of. The qualified agricultural property exemption, while not a total tax exemption, could provide some tax relief for urban farmers. In order for a parcel of property to be regarded as qualified agricultural property, it either must be classified as agricultural on the current assessment role or devote more than 50% of the parcel’s total acreage to agricultural use. Owners of property that is not classified as agricultural, which would be all Detroit urban farmers, must file an affidavit (Form 2599) claiming the exemption with the local assessor by May 1st. As mentioned previously, the qualified agricultural property exemption is not a total exemption. For Detroit residents, it will reduce the millage rate from 86.7896 to 68.7896.

This is just a brief and basic overview of some of the ways nonprofit and for-profit urban farming enterprises in Detroit may be able to reduce the amount that an enterprise pays in taxes each year. For many urban farming enterprises, taxes are a large burden. If your enterprise is heavily burdened by its taxes, you should consider filing for the property tax exemptions described above and consult with an attorney to explore ways you can further limit your tax liability.

Resolving legal issues for urban farmers in Detroit and the United States.